U.S. stock futures lower on rate-cut concerns

KateGibson

NEW YORK (MarketWatch) -- U.S. stock futures fell on Monday in the wake of declines overseas, pointing to a lower start on Wall Street, as worries about the global economy deepened and investors debated Federal Reserve interest-rate moves this week.

"Asian and European stocks [are] suffering losses on global-recession fears; we anticipate a cut of at least [0.25 percentage point] on January 30, providing further insurance against a declining economy," said Tom DiGaloma, head of U.S. Treasury trading at Jefferies & Co.

Those for the S&P 500
SPX, +0.31%
fell 4.1 points to 1,330 and Nasdaq 100 futures were flat at 1,793.50.

U.S. stocks closed a turbulent week on Friday with losses, with the Dow industrials falling 171 points, the S&P 500 down 21 points and the Nasdaq Composite losing 34 points.

U.S. rate-cut expectations have been scaled back since Societe Generale (013080) said it had sold European equity-index futures to close out a position built up by an alleged rogue trader.

The Fed cut rates by 0.75 percentage point on Tuesday after a big sell-off in global markets, and wasn't informed about the French bank's situation when it made the unplanned cut.

Tim Drayson, an analyst at ABN Amro, still expects the Fed to cut by a half point, though he said the Fed probably wouldn't have cut last week in the absence of major market turmoil.

David Rosenberg, an economist at Merrill Lynch, said the Fed is still behind the curve even after its three-quarter-point cut last week -- and he expects the central bank eventually to cut rates to 1%.

"This sounds aggressive, but Fed easing cycles in a recession almost always unwind to the rates that prevailed prior to the tightening cycle. The serious nature of the current housing deflation and credit-crunch environment makes the case for an aggressive easing in policy all the more compelling," he said.

Markets overseas saw big drops, with the CAC-40 in Paris losing nearly 2% and the Nikkei 225 down 4%.

The U.S. dollar saw mild losses against the euro and the yen, while gold futures rose $7.60 to $918.30 an ounce.

Crude-oil futures fell $1.36 to $89.35 a barrel.

Data on new-home sales during December will highlight Monday's economic calendar.

Elsewhere, New York Attorney General Andrew Cuomo over the weekend launched a probe into Merck
MRK, +1.02%
and Schering-Plough
SGP, -0.93%
over the timing of a release of a negative study into their cholesterol drug Vytorin. UBS upgraded Merck to buy, saying the sell-off on the trial's results was too steep.

General Motors
GM, +1.32%
may attract attention after a bankruptcy judge approved Delphi's
DPHIQ
reorganization plan. However, Deutsche Bank warned that lenders have not signed up for Delphi's $6.1 billion financing package that would help it to exit bankruptcy proceedings.

Alliance Data Systems
ADS, -1.85%
dropped 38% to $40.59 in pre-open trade after it said its $6.8 billion takeover by Blackstone Group
BX, +0.95%
is in jeopardy, as Blackstone is unwilling to meet requirements set by the Office of the Comptroller.

Countrywide Financial
CFC, +2.28%
said its chairman and chief executive, Angelo Mozilo, will give up $37.5 million in severance fees owed in connection with the lender's impending takeover by Bank of America
BAC, -0.09%

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